Russia plans large investments in Crimea’s economy

MOSCOW, March 20. /ITAR-TASS/. The economic tasks that lie ahead for Russia and the Crimean government are challenging, indeed. As the peninsula and the city of Sevastopol joined the Russian Federation in the capacity of new members according to the March 18 agreement about both territories’ accession, the region is facing a transition period before it can become fully integrated into the Russian economic system. This process is planned to be completed by next January.

The Ministry of Economic Development has estimated infrastructure investments at $4-5 billion. A car and railway bridge between the mainland and Crimea across the Strait of Kerch which links the Sea of Azov and the Black Sea is set to become the region’s main infrastructure project.

Furthermore, Crimea is going to revise its Black Sea offshore production sharing agreements with Ukraine, said the republic’s Deputy Prime Minister Rustam Temirgaliev. According to the Russian daily Vedomosti, the Russian gas monopoly Gazprom, which plans to buy Crimea’s Chernomorneftegaz company, can become a new participant in Crimea’s offshore projects.

As Russian Finance Minister Anton Siluanov said, the main chunk of investments in Crimea’s integration will come from the regions. The southern Krasnodar Territory has already allocated 15 billion rubles.

Further hefty infrastructure investments can come from Russian business. According to RBC Daily, when Russian President Vladimir Putin met with the members of the Russian Union of Industrialists and Entrepreneurs on Thursday, Crimea was high on the agenda. Deputy Minister of Economic Development Alexei Likhachev said businesses expressed keen interest in that region.

“Crimea and Sevastopol have plenty of competitive edges and tapping these resources will yield obvious dividends for Russia. The region’s development will be encouraged by competition against the neighboring Ukrainian regions,” Professor of the Russian Presidential Academy of National Economy and Public Administration Alexander Mikhailenko told the Izvestia daily. “Russia will provide Crimea’s effective development to show that Crimeans’ decision to join Russia was not a mistake.”

The expert believes “Crimea’s reunification with Russia is much more significant both geopolitically and financially as, say, the Sochi Olympics”.

“Social and infrastructure investments in Crimea, given the currently optimistic sentiment, are estimated at 90 billion rubles in the following five years. In reality, Russia may need twice as much. But if the capital is invested skillfully and transparently and if Crimea retains the European system of accounting, in five years’ time the peninsula will reach the breakeven point,” Director of the Institute of Problems of Globalization Mikhail Delyagin told Itar-Tass.

“Agriculture and tourism in Crimea are potentially highly profitable. As tourist flows to Egypt are shrinking and holidays in the Krasnodar resorts remain expensive, Crimean resorts may well hope for operating at a profit,” said the expert.

“All Russian enterprises are now vying for the right to invest in Crimean infrastructure,” he added.

“The way investors feel about the Crimean economy is now determined by the general patriotic uplift as the peninsula joined Russia. But the sobering moment is round the corner. Russians will have to tighten their belts, as salaries are not going to increase in the foreseeable future, while inflation is rising and will remain on the ascent,” warns Director of the Institute of Strategic Studies Sergei Oznobishchev.

“Given the deterioration in relations with the US and EU, Russia will face another round of arms race and will have to strengthen its defenses, which requires massive funds above the state’s current, already heavy liabilities to the military industry. So with all the society’s enthusiasm about the success of the Crimean scenario, Russia’s national interests should come first,” Oznobishchev said in an interview to Itar-Tass.